Corporate Governance: What Can Be Learned from Japan? (review)

Though now perhaps on the wane, interest in corporate governance remains strong. Issues of general corporate accountability, the avoidance of fraud, changing shareholder profiles, ideas of stakeholding, and the like—added to a lasting interest in comparative enterprise efficiency—have ensured that the topic continues to be the focus of attention for a wide range of observers of the enterprise. Nowhere is this more true than in Japan, which has been searching for explanations and remedies following the bubble crisis of the 1990s. The intriguing development here is the quest to identify what is wrong with Japan, rather than what is right. Cross-shareholding, bank-enterprise synergy, Keiretsu grouping, "enlightened" employment practices, and so on have now become liabilities rather than the model features that many economies sought to emulate in the 1970s and 1980s. Learmount's central point is that, in spite of the continuing level of interest in the Japanese enterprise and its internal workings, much of what is written is in fact impressionistic, repetitive, and not based on firsthand evidence.

Corporate Governance begins with a useful review of recent trends in both the study of corporate governance and the study of Japanese enterprise. Regarding the former, Learmount ultimately finds both economic and organizational theories wanting, because of a lack of precision or empirical grounding. The author is equally dismissive of studies of Japanese enterprise and its regime of control. The author's corrective is based upon a fairly straightforward method: targeting a range of enterprises and then interviewing key personnel. The book is based around fourteen (anonymous) case study enterprises. Information gleaned from interviews is then contextualized against other available data and information.

The core of the book is organized around four aspects of corporate governance: the role of shareholders, banks, employees, and management. With regard to shareholders, evidence suggests that the traditional cross-shareholdings still prevail and that these are largely afunction of business relationships. The author sees the Japanese system as an internalized network of control in which the shareholder has an informal, marginal, or even ceremonial role. There is a trend toward foreign shareholding, which brings with it a different set of criteria in terms of profits, dividends, and reporting since these investors tend to be more proactive. Also, globalized Japanese companies increasingly need to conform to international accounting systems. But the stock market in Japan remains "immature," and mutual shareholding or mochiai shares remain as a major proportion, being essentially symbolic of a business relationship and not intruding on corporate governance.

Japanese banks have always been seen as sharing a close relationship with the enterprise, either at the centre of prewar Zaibatsu groupings or within their replacement Keiretsu networks. This relationship has come under increasing pressure since the bubble crisis, when many banks were exposed as riven with poor or uncommercial decision-making cultures. There has been some trend toward the substitution of capital market for bank finance, and again some encroachment by foreign banks, with expectations of a more robust role in corporate governance. Learmount's interviews, however, again reveal that change is slow, that long-term relationship banking still plays an important role, and that service provision is considered as important as finance provision. Having said this, the author is keen to show that the banks remain, as before, very much junior partners in terms of control, and operate on limited information provided by enterprises.

This general theme—that change in the balance of power in corporate governance in Japan has been challenged, but has remained essentially unchanged—continues through the chapters on employment policy and management. Much has been made of the fact that employment conditions—for example, lifetime guarantees—must change in a post-bubble Japan, but there is little sign that this change is fundamentally the case, certainly in the larger firms. The author notes that influence and decision making involving the workers through various representative structures remains a feature, though this is one of the...